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Tuesday, July 28, 2015

P5+1 Deal Has An Exit Clause (Iran Can Take The Money And Run)

The P5+1 Agreement has an exit clause. As pointed out by Owen Alterman of the Institute for National Security Studies Tel Aviv, Israel, it's right there on page 19, paragraph 36 (the paragraph is at the bottom of this post.

As previously discussed the deal is not forever as John Kerry promised, but most of the key provisions expire after ten years the rest after fifteen. But according to paragraph 36 any party, be it Iran, Prime Minister of Great Britain, or a future U.S. president can kill the Iran nuclear deal with 35 days' notice.

Iran might need to wait a little longer—an extra 30 working days—to check a box buried in Annex IV. But, after that, under Paragraph 36, Iran can claim that any of the P5+1 is "not meeting its commitments" under the agreement. That triggers a 35-day set of meetings. Once that clock runs, Iran can claim the issue "has not been resolved to [its] satisfaction" and that it “deems” that the issue "constitutes significant non-performance." Iran can then "cease performing its commitments under this JCPOA in whole or in part." The agreement is done.

On the other hand, once Iran has its $150 billion (okay Kerry says it's only $100 billion) and made some long term oil deals they can give the nuclear agreement the big heave ho and just take the money and run. That way the can go back to the way it was but have a little nest egg to get through the rough sanctions (if the snap back provision actually works).

Of course the exit provision also allows a new president to ditch the lousy deal.

On January 21, 2017, a new U.S. president could point to an Iranian breach and, on February 25, 2017, pull the United States out of the agreement. He could also have diplomats sit through the five weeks of meetings and then exit at some later date; Paragraph 36 sets no deadline.

A future U.S. president does not need to renounce the agreement; he can
simply exit the agreement under the agreement's own terms. Expect this
to be an issue in the 2016 campaign. But honestly I do not see a new president, even if it is a Republican (please God), killing the deal without the support of the international community.

Paragraph 36 purports to be a dispute resolution clause. Underneath the costume, this is really a termination clause. Those who disagree will likely point to three arguments. First, they will say, moving along the exit ramp depends on making the case that someone else has violated the deal. If the P5+1 is keeping its end of the bargain, they will argue, then Iran would have no grounds to cut and run.

Yet in a complex deal such as this one, a party will likely be able to point to some plausible story of breach. Iran has a ready candidate. Paragraph 25 says that if any U.S. state or local government “is preventing the implementation of the sanctions lifting,” then the federal government must “take appropriate steps, taking into account all available authorities.”

“All” authorities? If the New York State Assembly slaps sanctions on Iran, does D.C. need to cut all money for New York’s highways? Stop funding New York’s Medicaid? Play Germany to New York’s Greece? Even then, Iran could point to some “authority” not used. The United States would not be “meeting its commitments,” Iran would say. Iran would “deem” the breach significant—note the subjective standard—permitting Iran to jump ship. This type of brainstorming is not limited to Iran. For a future U.S. president wanting to exit the deal, effective lawyering—or real Iranian breach—could supply the plausible story needed.

Second, some would argue that whimsically ditching the agreement would violate the parties’ Preamble promise to “implement this JCPOA in good faith and in a constructive atmosphere.” But good faith is not easy to define, and bad faith not easy to prove. A Republican presidential hopeful, for example, could help his case by avoiding crowd-pleasing promises to ditch the deal and instead just pound the podium vowing to play tough on implementation.

In any case, the goal in this situation, unlike in most contracts, is not to convince a judge who has enforcement power. The goal is to have a plausible story to tell supporters and to win at least a slice of global public opinion. Even if not all are convinced that a party is acting in good faith, some will be convinced, and that could be enough.

While exiting the deal would make our Saudi, Israeli and other Gulf State Allies happy unless there is a clear Iranian violation (not totally out of the question) even a GOP POTUS would not want to alienate our European allies, along with Russia and China by killing the deal that's was in place for over a year (by Jan. 2017) without an Iranian screw-up

Third, some might fall back on the argument that in the dog-eat-dog world of international relations, Iran (or a future U.S. president) does not need Paragraph 36 or any other high-falutin’ legal theory. The party could just walk away. Fair enough, but the two routes to the exit do not supply the same legitimacy. Un-signing an agreement is gauche and stains a country’s credibility. Using an agreement’s own terms to exit has a different patina. The country would not be breaking its word, but, rather, following an agreement as it sees fit. This makes the exit easier.

One final note: For lawyers, Paragraph 36 packs other goodies. Scroll down in your PDF, and you'll find an imaginary creature, the "Advisory Board." The agreement provides for a non-binding, arbitration-style "Advisory Board," a laudable idea. But how is the panel's third member picked? The drafters don’t tell us. So the Advisory Board might never be able to convene.

While paragraph 36 is basically an exit clause, in practical terms it is much more likely that Iran takes the money and runs, than a future president killing the deal after its been implemented. The bottom line is if the deal is going to be stopped, it must be stopped NOW by a congressional vote. Because at least from the US perspective it cannot be stopped later.

Paragraph 36: If Iran believed that any or all of the E3/EU+3 were not meeting their
commitments under this JCPOA, Iran could refer the issue to the Joint
Commission for resolution; similarly, if any of the E3/EU+3 believed
that Iran was not meeting its commitments under this JCPOA, any of the
E3/EU+3 could do the same. The Joint Commission would have 15 days to
resolve the issue, unless the time period was extended by consensus.
After Joint Commission consideration, any participant could refer the
issue to Ministers of Foreign Affairs, if it believed the compliance
issue had not been resolved. Ministers would have 15 days to resolve the
issue, unless the time period was extended by consensus. After Joint
Commission consideration – in parallel with (or in lieu of) review at
the Ministerial level - either the complaining participant or the
participant whose performance is in question could request that the
issue be considered by an Advisory Board, which would consist of three
members (one each appointed by the participants in the dispute and a
third independent member). The Advisory Board should provide a
non-binding opinion on the compliance issue within 15 days. If, after
this 30-day process the issue is not resolved, the Joint Commission
would consider the opinion of the Advisory Board for no more than 5 days
in order to resolve the issue. If the issue still has not been resolved
to the satisfaction of the complaining participant, and if the
complaining participant deems the issue to constitute significant
non-performance, then that participant could treat the unresolved issue
as grounds to cease performing its commitments under this JCPOA in whole
or in part and/or notify the UN Security Council that it believes the
issue constitutes significant non-performance.